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Is Microsoft's Lawyer Too Tough For The Job?

January 25, 1998

People: LITIGATORS

IS MICROSOFT'S LAWYER TOO TOUGH FOR THE JOB?

Bill Neukom's no-holds-barred style could backfire

On Microsoft Corp.'s suburban Seattle campus, where most folks dress in slacks and sweaters, William H. Neukom stands out like an egret in a flock of seagulls. The company's senior vice-president for law and corporate affairs often wears a suit and always sports a bow tie. Tall and slim, with a wavy pompadour, the 55-year-old graduate of Stanford University Law School looks every bit the refined Brahmin. But when it comes to the attribute for which Microsoft is best known--take-'em-by-the-throat aggressiveness--Neukom fits right in.

Neukom is the field commander for Microsoft's no-holds-barred battle with Assistant Attorney General for Antitrust Joel Klein, a high-stakes tussle that could reshape the computer industry. The two sides clashed on Jan. 13, when Klein hauled Microsoft into U.S. District Judge Thomas Penfield Jackson's Washington (D.C.) courtroom on contempt charges. With Neukom watching quietly from the defense counsel table (like most general counsel, he lets his outside lawyers argue), Justice Dept. attorneys lit into the software maker. They argued that the company made a "mockery" of Jackson's order requiring it to offer PC makers a version of the Windows 95 operating system without Internet browser software. Microsoft is taking an "extreme and illogical course," charged Justice's Phillip R. Malone.

The company insists that it complied with the judge's order as best as it could, given the technological constraints. But a growing chorus of critics thinks Microsoft is playing a pointless game of hardball. Ever since the agency filed a petition on Nov. 11 charging Microsoft with violating the terms of a 1995 consent decree, Neukom and his attorneys have been blasting the government's attorneys and fighting Judge Jackson's decisions. On Jan. 12, for example, the company sought to remove Harvard University law professor Lawrence Lessig, who was appointed by Judge Jackson to sort through the lawsuit's vexing technological issues. Noting that Microsoft first attacked Lessig in a widely disseminated letter, Columbia University law professor Harvey J. Goldschmid said that "the way they did it, in public, was unwise." Instead, they should have initially expressed their opposition "in a normal way--with a motion in court."

Neukom's aggressiveness isn't irritating just the feds. Company attorneys also have angered the Texas attorney general's office, which is conducting its own antitrust investigation. During a routine debate over document disclosure, Microsoft lawyers adopted a "superior tone," says Special Assistant Attorney General Samuel Goodhope. "When they act like we don't know anything, that sparks a fire in our gut."

Neukom, who declined to be interviewed, has whipped up his legal troops to fight so furiously that some observers predict the general counsel ultimately may hurt his company. Microsoft's behavior has been "most unwise," says former U.S. Assistant Attorney General William F. Baxter, who in the early 1980s led Justice's breakup of AT&T. "It is the kind of thing that builds up barriers to sensible settlement negotiations later," says Baxter, now an antitrust scholar at Stanford University Law School.

But Neukom has so far offered no apologies. On the contrary, he has said he considers it his duty to defend the principle that the government has no place in software development. "We were very clear with the government and with the court that the relief [they were] insisting upon...would lead to impracticable results, and it did," Neukom said at a Jan. 14 news conference. He echoed Microsoft CEO William H. Gates III. In a recent E-mail to BUSINESS WEEK, Gates wrote: "We can't continue to do Windows if we have to create funny versions with...thousands of features deleted."

In fact, Neukom is in sync with Gates on a wide array of issues. Key decisions "are made between Gates and [Executive Vice-President Steven A.] Ballmer and Neukom," says James Sowers, a former Justice attorney who watched the three in action before the consent decree. Adds Robert Litan, an analyst at the Brookings Institution who helped negotiate the consent decree while at Justice: "Throughout the investigation, it was clear to us that Bill Gates was calling the ultimate shots, and Bill Neukom made no bones about that."

It's no wonder Gates and Neukom are so tightly aligned. Neukom has handled Microsoft's legal affairs since 1979, when he was an up-and-coming attorney at Gates's father's Seattle law firm, now known as Preston Gates & Ellis. One day, the senior Gates approached Neukom and asked if he'd be willing to handle a lease for his son's 12-person software firm, which was then in the process of moving from Albuquerque to a Seattle suburb.

In 1980, the California native made a bid for attorney general of Washington state, but as a liberal Democrat, he was defeated in the Reagan blitz. By 1985, Neukom was on board as Microsoft's general counsel. The work has been nonstop ever since: There was the initial public offering in 1986. Then Apple Computer Inc. sued Microsoft in 1988, alleging that it illegally copied the Macintosh graphical user interface, a term for such elements as screen icons. A year later, the Federal Trade Commission began investigating Microsoft for antitrust violations--a move that ultimately led to the consent decree. Neukom resolved both of those big cases without harm to Microsoft. He and Gates opted not to contest the government ban of its 1995 buyout of Intuit Inc., citing the long time it would take to resolve the issue. The Intuit fizzle doesn't stain his litigation record, though he did lose one high-profile case--a $120 million patent-infringement suit by Stac Inc. Usually, his touch is golden.

And he has been amply rewarded for it. A pre-IPO employee, Neukom holds Microsoft stock options worth an estimated $60.7 million. He rules a staff of 300 that includes 90 lawyers. At the Consumer Electronics Show on Jan. 10, a Microsoft video got a big laugh with the line: "There's more new technology on the way than there are lawyers on the Microsoft campus." But Neukom hasn't let success swell his head. He still lives in an older Seattle neighborhood--and has so far fought off the urge to build a modern Xanadu on Lake Washington, unlike Gates and some of the other Microsoft zillionaires. When Neukom has spare time, he jogs or fly-fishes, both sports that require considerable patience and stamina--handy attributes for a Microsoft attorney.

GOOD GENERAL? In light of increasing criticism as Microsoft's legal battles drag on, some critics say Neukom should tone down the aggressiveness--even if that means standing up to Gates. "A good general counsel serves...as a real independent enforcer of business ethics and the law itself," says Robert H. Kohn, former general counsel of Borland International Inc., a longtime Microsoft rival.

But not everyone is convinced Microsoft's legal strategy is flawed. David R. Bradford, general counsel for Microsoft rival Novell Inc., says that while Neukom may have been "too cavalier" in responding to Justice, it's important to project confidence. "When you litigate, if you show you're willing to negotiate, some judges might think there's softness in your case," he says.

In recent weeks, Microsoft has made a concerted effort to portray itself as a gentler organization. Its executives seem to recognize that what started off as a narrow consent-decree case has escalated into something that could result in Microsoft's being prohibited from integrating its browser with future versions of Windows. "Sometimes we appear harsh," admits Microsoft's Ballmer. But while he says the company might tone down its rhetoric, there will be no backing off when it comes to making its case aggressively in court. The general counsel's name isn't pronounced Bill "Nuke 'em" for nothing.By Steve Hamm in San Mateo, with Susan B. Garland in Washington and Mike France and Amy Cortese in New YorkReturn to top